September wholesale inventories drop unexpectedly

WASHINGTON 
Wholesale inventories held by distributors fell in September, the government said Friday, as companies cut stockpiles in the face of the economic slowdown.

The Commerce Department said inventories fell by 0.1 percent. Analysts had expected them to grow by 0.3 percent, according to Thomson Reuters. The department also revised August's reading down to a 0.6 percent increase from 0.8 percent.

Wholesale sales also dropped in September, by 1.5 percent, the department said, following a revised 1.6 decline the previous month.

The steep drop in sales caused the inventories-to-sales ratio to increase to 1.12 from 1.1, meaning that distributors have enough goods to last 1.12 months at the current sales levels.

The increased ratio also means that distributors are having difficulty cutting their stockpiles fast enough to match slowing sales. If inventories get too high, companies will cut back on the production of new goods.

"Overall, this is a mixed report for business spending," said Tim Quinlan, an economic analyst for Wachovia Corp. But wholesale sales likely dropped in October as well, which could push the inventory-to-sales ratio higher, he said.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles.

Factories hold another third, and the Commerce Department said last week factory inventories dropped by 0.7 percent.

The rest is held by retailers, and their inventories will be reported Nov. 14 as part of a broader business inventory report issued by the Commerce Department.